In the recent mortgage crisis, much blame was laid at the feet of America’s financial institutions. Many finger-pointers completely disregard the key role U.S. government policy played in the debacle.
For decades the government has pushed home ownership as a social panacea, much to the detriment of other elements of public policy.
I recently reviewed Niall Ferguson’s Ascent of Money. Chapter 5, “Safe as Houses” provides detail:
Since the New Deal, the federal government has provided various guarantees—from deposit insurance to the explicit backing of Fannie Mae, Freddie Mac, and Ginnie Mae—to encourage mortgage lending. At best this primes the pump when liquidity gets, well, less liquid. At worst this encourages irresponsible lending, because, after all, the government (taxpayers) will bail us out.
By providing federally backed insurance for mortgage lenders, the FHA sought to encourage large (up to 80 per cent of the purchase price), long (twenty-year), fully amortized and low-interest loans. This did more than merely revive the mortgage market; it reinvented it.
…From the 1930s onwards…the US government was effectively underwriting the mortgage market… That was what caused property ownership—and mortgage debt—to soar after the Second World War.